Arnold Kling picked up on my hydrogen engineering guest post last week, and put together a very insightful post on the topic. I strongly recommend the comments on the post -- the commenters all made very important and useful points about the economic viability of hydrogen, wind, and solar power when we take into account the lower energy intensity of those sources.

APPLE MUSIC AND VERTICAL INTEGRATION: I am deeply intrigued by Apple's proposal to buy Universal Music Group from Vivendi. For one thing, it's an interesting example of vertical integration, and it may very well generate some new business models for aligning the incentives of artists, customers, and intermediaries. The existing recording industry structure, with record companies and their mouthpieces at RIAA as intermediaries, continues to be premised on retaining the existing industry structure. Apple's move could very well be the music industry equivalent of their 1984 commercial, throwing the computer through the big screen.

This is a discovery process move intended to see if there are benefits to be had from aligning incentives along the value chain through a different business model. And Steve Jobs has a record of making unlikely moves with serious risks actually work (he also has NeXT, but that's the way it goes). Jobs has demonstrated that he can bring fresh thinking to the marriage of industries -- in this case, technology and music.

But the new Apple music system will have to bring some value added to compete with existing free download services. I will be very curious to see where this all goes.

Phone number portability: the key to telecom competition?

Today a hearing will take place in DC District Court on the road to November 24, 2003. That November date is the standing deadline for phone companies to allow customers to keep their phone numbers when they change providers. To date, cellular phone companies have blocked this move, succeeding three times in getting the portability deadline delayed. But given the utter hash that the FCC has made of local fixed-line telecom regulation, number portability may be the only short-run opportunity to introduce some competition for fixed-line telecom service.

I think of this conflict as having its foundations in ill-defined property rights. In the bad old days, Ma Bell owned the entire value chain, from wires to switches to the wires in your house to the clunky black rotary phone. The ownership of the actual numbers was pretty irrelevant, because numbers referred to fixed physical locations, and there was only one phone company anyway, so who cares? But technological change, unleashed by regulatory changes and the AT&T breakup, made fixed-line telephony contestable and increasingly competitive, bringing unforeseen products and services to consumers at reasonable prices.

Legal rules have to innovate too, to keep this dynamic flowing. Common law, with its ability to evolve, does a better job of this than statute-based law. This is one reason why we’ve gotten bogged down in number portability at the FCC, and why cellular companies have succeeded thrice in blocking changes to the regulatory statutes that would allow number portability.

Phone numbers, which used to have little value to consumers because of their connection with a physically fixed location, now have substantial value to consumers because number portability gives consumers increased power and choice in a market where services are mobile and are most easily consolidated through one phone number. Thus it’s now worth defining property rights over phone numbers, whereas before it wasn’t worth considering or formalizing.

Furthermore, the property rights in the number should rest with the customer. For now, the only viable competition for fixed-line telephony is mobile telephony, given how the FCC passed the buck on creating consistent, transparent, market-based local telephone regulation earlier this year. In that environment of regulatory uncertainty at the states, and with the incumbents still holding substantial market power in local fixed-line telephony, customer ownership of phone numbers is a property rights regime that provides a ballast against incumbent market power in local fixed-line telephony.

Cellular companies have opposed number portability. Their argument: the technology to enable number portability is very costly. Furthermore, they argue, they spend a lot to acquire customers, so number portability will drastically cut into their margins and will increase “customer churn” in the industry. My suggestion to cellular companies: rethink your advertising and marketing budgets. Do you really have to plaster the place with ads, and offer myriad specials, to attract customers? As in other countries whose cellular sectors thrive with number portability (such as the UK), use this as an opportunity to rethink your business model. Indeed, the cellular companies may actually find that number portability increases their market share by making it easier to eliminate your land line entirely! In such an environment, the focus of competition would likely become service quality, at which local telcos are notoriously bad (particularly in the upper Midwest, Ameritech-land!).

Under the current statutory regulations and ambiguous property rights, phone numbers are a tool for rent seeking and lock-in, because of the ability of cellular companies to exploit the property rights ambiguity and the political process to keep number portability at bay. Number portability, by explicitly defining property rights in numbers for consumers, is a long-overdue way for the FCC to remove a static statutory barrier to further competition in telecommunications.

Recent news articles on number portability have appeared in Yahoo! News, the Washington Post, MSNBC, and Media Daily News.

Greetings from London! I spoke yesterday at a conference honoring the 20th anniversary of the Littlechild Report, which got the ball rolling for utility privatization in the UK. One of the watersheds in utility regulation. I'll have more to say on that when I return.

But now, I'm off to do some yarn shopping ...

MORE ARTICLES ON POST-SADDAM OIL IN IRAQ: This Business Week article, this Oil & Gas Journal article, and this Economist article (subscription required) elaborate on the post-Saddam oil industry and how to proceed with its liberalization.

COMMENTARY ON FERC STAFF REPORT: On March 26 the Federal Energy Regulatory Commission issued its staff report on price manipulation in western wholesale markets. The report, and the likely FERC actions to arise from it, accomplishes some goals that will reduce regulatory uncertainty and improve the investment prospects in this industry, in the rest of the country if not in California.

My analysis of the economic implications of this report and its findings is available at RPPI.org.

GUEST POST ON HYDROGEN: I received an informative and interesting email (actually, I received several, but I'm posting this one) in response to my Let the Hydrogen Economy Evolve series on RPPI.org. The author, a mechanical engineer and retired university professor, highlights some of the engineering practicalities that I did not emphasize in my writing. His remarks:

The "Hydrogen economy" and/or the "Hydrogen car" discussion seems seldom to address some important practical engineering considerations:

1) Thermodynamic feasibility [which means, ultimately, economic viability]
2) Cost
3) Safety

1) Speaking as a retired thermodynamics instructor I can assure you that there is no way that spending heat energy to make hydrogen to be burned to make heat energy can be anything but a losing proposition. If environmental impact is the only criterion for acceptability, a case can possibly be made that large industrial power plants create less undesirable gaseous products than do small (e.g., automotive) ones. But thermodynamically, and hence - with certainty - economically, this is a loser. Nuclear electrical power plants could win hands down in the environment-only sweepstakes as the prime power source, but this seems to be politically unacceptable in the US at present, for nontechnical reasons.

2) The cost of distributing Hydrogen as a fuel for automotive use would be staggering. The problem is that Hydrogen has such a low density that, to transport it in gaseous form would require extremely high pressure confinement and/or containers of incredible proportions. At 1 atmosphere pressure and 20 C, hydrogen gas has a density of about 90 grams per cubic meter. Gasoline has a density of about 750 kilograms per cubic meter, about 8000 times higher. So even if only 1/3 the mass of hydrogen were needed to replace a unit mass of gasoline, the volume to be transported would be 2700 times greater. Transport in liquid phase seems completely impractical, as it would require Hydrogen confinement at -260 C. Transport at high pressure ... say at 270 atmospheres, or 4000 psi ... would still require moving 10 times the volume of the energy equivalent in gasoline. And that brings up the final, but by no means the least, consideration: safety.

3) Can you imagine the nations roadways with fuel trucks of 10 times the volume of today's tankers [or equivalently, 10 times as many of them] loaded with Hydrogen at up to 4000 psi? A modest impact with another vehicle, an overturning, and a rupture of the tank would lead to an incredible fireball of burning gas that would make the Hindenburg disaster look like a picnic bonfire. And how about filling an automobile tank to a pressure of about 4000 psi from a high pressure hose. It takes little imagination to conjure up a minor misfit of couplings, a slight leak of odorless, invisible hydrogen, and a static spark to create a filling-station disaster. And how does one fight a hydrogen fire? Deprivation of Oxygen is the only possibility, and that takes specialized equipment. Re-equip all the fire stations before thinking of going to a Hydrogen car.

In short, the fact that the automobile exhaust pipe would emit only water vapor due to combustion seems to be the Mesmerizing fact in this discussion. But that is only a small part of the problem of changing any significant part of the nation's automotive fleet to Hydrogen power. And I don't want to drive on a highway that kills 50,000 people a year with the added hazard of high-pressure Hydrogen tanks aboard the vehicles!

MORE POST-SADDAM OIL SUGGESTIONS: Michael Barone writes in U.S. News and World Report about the post-Saddam options facing Iraq. His concluding paragraph discusses oil:

What about private property? Administration officials have often said that reconstruction of Iraq will be affordable because of the nation's oil revenues and emphasize that that money belongs to the Iraqi people. But there seems to be an assumption that all the revenues should go to the Iraqi government. Why not give some of that money directly to the people? In the New Republic, John Judis points out that oil wealth in almost every country has produced an overlarge and corrupt state apparatus and has hindered the development of a vigorous private sector and civil society. There are alternatives. The Alaska Permanent Fund each year pays a dividend of 20 percent of the state's oil profits to every citizen--$1,540 per person in 2002. The rest of the money is invested, to provide a permanent income when oil revenues decline. Alaskans regard this as personal wealth; in 1999, 83 percent of Alaska voters rejected a proposal to use Permanent Fund revenues for state government spending. A similar fund could be created for Iraqis. It could provide a payment of something like $1,000 a year--meaningful in a country where Umm Qasr dockworkers make $30 a month. This would provide every Iraqi with personal wealth and would tend to foster investment and nurture the growth of a private sector. It would give Iraqis a vested stake in the new regime. It would show that the United States has come to liberate Iraq and not to get its oil. And it would be a shining example to the leaders and the people in the other oil states in the region.

The Alaska oil fund has worked well for Alaskans. It's an interesting suggestion. And of course I am all for privatizing natural resource ownership.

ODIOUS DEBTS: In Thursday's Economic Scene column in the New York Times, economist Alan Krueger raises the issues of post-Saddam Iraqi debt, and particularly points readers to this paper on the economics of odious debt by Michael Kremer and Seema Jayachandran of Harvard University. Many thanks to William Sjostrom at AtlanticBlog for posting on this. I also posted on this topic back in mid-February, based on an article by Lawrence Solomon in the National Post.

[I can't believe I'm going to say this] Advantage: Knowledge Problem!

Seriously, Kremer and Jayachandran recommend that debts deemed odious ex post should not be transferable to successor governments. I think there are a host of problems with this suggestion, not the least of which being the subjectivity inherent in having a "security committee"-style determination after the fact of what's odious and what's not. There's a dynamic that open to lots of political and diplomatic manipulation. And if you are considering becoming a creditor of a government, you will have to factor in the nonzero probability that your debt will be deemed odious, so you are going to demand a higher interest rate from them. Hey, wait, that's probably a good thing ... in any case, the effect on capital markets and on incentives/moral hazard/adverse selection types of issues is something we should definitely analyze carefully.

While we're on the subject ... last Wednesday, Andrew Cassell of the Philadelphia Enquirer had a really good commentary on the "is it about the oil?" question. His take on the subject dovetails nicely with my comments from February on the subject.

SO WHAT'S GOING ON WITH THE OIL? Fires are out, for the most part, and with the success thus far in Baghdad thoughts turn to a post-Saddam Iraqi oil industry. In this earlier post I mentioned Wednesday's editorial in the WSJ about auctioning off Iraqi drilling rights, regardless of nationality. According to this Agence France Presse story on Yahoo! (oh, the irony), the industry may move in that direction. Exiles who are active in the Oil and Energy Working Group suggest removing the Iraqi state monopoly oil company and opening the industry to private companies. The extent to which this move will be "regardless of nationality" is certainly going to be a political tool.

There are other stories about this group, which works in conjunction with the US State Department, at the Washington Post, at IraqNet and the Alaska Oil & Gas Reporter.

See also the DOE's country analysis brief on Iraq, which illustrates the productive potential of Iraq's energy resources.

Also, think about how much better off the Iraqi people would have been if these resources had been fully exploited (consistent with long-term production, of course) over the past 11 years, in addition to the depressing thought of how much better off people would have been if the resources that went toward munitions and tanks had gone instead into investment, trade, and commerce.

Journalist casualties have been as depressing as military casualties, and probably viscerally more so because they are people we bring into our homes, on TV, on radio, and in print. Michael Kelly and David Bloom, in particular, have been part of my life for the past few years. I was so favorably impressed with what Michael Kelly was doing at the Atlantic Monthly that I subscribed, instead of reading it sporadically at the library. Just Thursday, in fact, I was on a plane returning from DC and using the time to catch up on my April and May issues. Following Andrew Sullivan, I recommend Maureen Dowd's eulogy in the Washington Post.

FOX HAS THE WAR SCOOP: It's been chilly and grey here in Chicago all weekend, so fabuloso spouse and I spent a lot of time parked on the couch, him playing armchair general and me knitting on one of my three WIPs (that's work in process, for you non-knitters or non cost accountants). Between Greg Kelly and Ollie North, Fox certainly had the scoop on the visual progress into Baghdad. I particularly liked the segment, though, with Greg Kelly talking with his father, who is NYC Chief of Police. I wonder if the fact that Greg is a former Marine influenced where he got embedded, and led to his being better positioned.

Now, at 9AM CDT Monday, Fox is also reporting that Baghdad citizens in three areas of town are rising up against Iraqi soldiers. Wowie.

There's also an article on how American will try to fly its current schedule with 20% fewer pilots. The hard copy of the paper has a graphic accompanying it showing revenue declines in the airline industry since deregulation in 1978, and they've been pretty dramatic.

This is how dynamic competition works: competitors come in an take away market share, either through increased volume or through product differentiation or both, and part of the beauty of Schumpeter's perennial gale of creative destruction is that firms have to innovate to cut costs and increase productivity in order to survive. And that's good for consumers.

The Wall Street Journal is full of good stuff today, particularly this commentary by M.A. Adelman on how to commercialize the Iraqi oil fields (subscription required). His recommendation: an open auction of drilling rights to the highest bidder, regardless of nationality. Excerpts:

While the war continues in Iraq, a debate is already simmering about how to finance the reconstruction when the bombs have gone silent. One of the key points will be how to deal with the oil fields -- and there is a promising way that a new regime can handle it to set the country off on a strong footing: An auction of producing oil reserves and prospective oil deposits to the highest bidder, regardless of nationality. The producing reserves alone would bring in roughly $100 billion soon, and much more would follow.

The instinct is already present: A leading member of the Iraqi National Congress, Faisal Qaragholi, told the press in February that Americans will get no special treatment when it comes to parceling out oil fields once Saddam is gone. As ungrateful as this may sound, Mr. Qaragholi is right. Competition, not goodwill, is the most lucrative and efficient way to rehabilitate Iraq's oil industry. ...

American and British oil companies possess the most discovery-production know-how. They will be willing to spend the most for such rights and will win most of the bids. Russian oil companies have had much recent experience, are flush with cash, and would bid too, perhaps heavily. It will be widely believed that regime change in Iraq masks "a grab for oil" by the U.S., Britain, or Russia. But while time may cure this fantasy, no "fair division of oil rights" will help it, and none should be tried.

I think his recommendations are sensible on a range of fronts: economic efficiency, diplomacy, democracy, indigenous institution building. I hope decision-makers are taking such recommendations seriously.

CAN THE GOVERNMENT PICK TECHNOLOGY WINNERS? That's the question I posed, and on which I offered some thoughts, in the fifth of our five-part hydrogen series. Punch line: the government doesn't do a better job than any other group of folks, and arguably does a worse job because it has no mechanisms for saying "no". Markets provide ready mechanisms for funding, and for cutting bait.

Thus even though markets don't always and necessarily do a perfect job of getting the technology picks right because of transaction costs etc., they do a better job than any other institutions that humans have devised to allocate resources in the face of both risk and uncertainty.

I'd also like to thank Arnold Kling for his very nice post on this series, and I recommend that you read his discussion question and the comments.

It's been a crazy couple of weeks, thus the posting hiatus. I was in DC all of last week, then off to a day trip Monday to San Francisco, with the red-eye back to teach the first day of class Tuesday, now at the airport on the way to DC for a meeting. Ugh. This also means that although I've read the FERC materials from last week, I haven't had time yet to write up my analysis. Friday, probably.

HYDROGEN-POWERED BUILDINGS? Today's fourth part of RPPI's five-part series on hydrogen looks at using hydrogen fuel cells and hybrid engines to power buildings. There's a lot of potential benefits there, and not as many problems as with vehicles. Tomorrow: can the government (or anyone else, for that matter) pick technology winners?

Check out Virginia Postrel's Economic Scene column today, in which she analyzes whether or not war is good or bad for the economy. Of course, it cuts both ways. One of the interesting facts of economic history is that the physical and human devastation is the largest cost, while one benefit that has lots and lots of unanticipated and expanding future benefits is technological change.

FERC RULING ON CALIFORNIA REFUNDS: Here's Chairman Pat Wood's statement today on the matter, and a findings-at-a-glance summary. I'm sure I'll have more to say on this once I've read the staff report.

GIVING ELECTRICITY REGULATION A JOLT: Ken Silverstein has written a wonderful article today on ways to change the regulatory approach to retail electricity markets, quoting both me and Ken Malloy from the Center for the Advancement of Energy Markets extensively. Both Ken and I make the market-based case for utilities to be free to offer a variety of services to their customers. In addition, harnessing tht customer-focused approach to value creation would also create the opportunity for consumer demand to constrain the exercise of supplier market power, and would thus be a good recommendation for a forward-looking California to follow, as I suggested below.

SHOULD THE FEDERAL GOVERNMENT SUBSIDIZE HYDROGEN FUELING INFRASTRUCTURE? Today's third part of RPPI's five-part series on hydrogen addresses proposed subsidies to hydrogen fueling infrastructure, to solve the "chicken-and-egg problem" of vehicle demand and fueling supply. As the article points out, this is not a new problem, and we can learn from how solutions evolved in past instances.

Today the Federal Energy Regulatory Commission is deciding on the extent of refunds that energy companies owe to California resulting from the 2000-2001 electricity policy fiasco. I've got an op ed on the issue in today's Orange County Register, basically saying what I've said here before: enough already. Stop focusing resentfully on the past and start thinking about what is truly in the best interest of the future of California businesses and residents -- constructing simple, transparent market institutions that will encourage the electricity industry to innovate and thrive by providing the variety and reliability of services to the wide variety of consumers that will make them better off.

In the interest of balance, here's an op ed from today's San Francisco Chronicle that has a different take on the situation from mine.

THE ECONOMICS OF HYDROGEN: Today's second piece in RPPI's five-part series on hydrogen focuses on the economics of innovation. Hydrogen research will not proceed in a vacuum, but will occur in the context of continuing innovation of internal combustion engines. This simultaneous innovation of mature and new technologies has lots of historical precedents, and I highlight one of them in the commentary.

Tomorrow: does the federal government have to subsidize hydrogen fueling infrastructure?

LET THE HYDROGEN ECONOMY EVOLVE: This week at RPPI.org: Let the Hydrogen Economy Evolve, a 5-part series on the science and economics of proposed federal hydrogen policies.

Today's commentary, the first in the series, lays out the current state of the science of hydrogen fuel cells. Topics for the rest of the week include the economics of simultaneously innovating mature and new technologies, whether or not to subsidize hydrogen fueling infrastructure, why vehicles and not buildings, and whether the government can pick technology winners.

Crude Oil Falls for Seventh Session as U.S., U.K. Forces Secure Iraq Wells. And the fall is substantial again, at around a dollar now, to around $27.10/barrel. Furthermore, US DOE reports show that world oil supply is virtually unaffected.

Oil trading is volatile, and currently the price is below $29, down $1.17 from yesterday's close. Interesting in light of the alleged fires around Basra.

Fox News is reporting that the Dept of Homeland Security has received a specific threat against the Palo Verde nuclear power plant in Arizona, and that fed, state and local authorities are providing coordinated defense of nuclear power plants.

UPDATE: See this CNN story on the threat.

NO SURPRISE THERE: Oil fires in Southern Iraq, near Basra. Massing of ground troops, one hopes with one of their objectives being to extinguish those fires before they cause serious environmental and economic harm. Delayed quotes on oil markets don't show any effect yet from that information. Iraqi officials deny the reports, according to Reuters.

OK, now I'm going to start grading! We'll see how long that lasts, though.

It's a dark, foggy, rainy day here in Chicago, and I'm off to cuddle up on the couch with a cup of tea and a pile of bluebooks. More later.

WHERE'S THE OIL PRICE SPIKE? The commencement of incursions into Iraq has not led to price spikes in oil markets, but instead to a three-year low. Part of the explanation for this is the expectation of a quick war that does not disrupt supplies. This Bloomberg Energy News article also answers my question from earlier this week about the reasons for the price differences between London and New York markets:

"Saudi Arabia and OPEC are covering any shortfall from Iraq,'' said Sam Tilley, an analyst at Sucden U.K. Ltd., a London futures brokerage. ``The oil market expects the war will be quite short and that Iraqi oil fields will be pumping again afterward.''

Brent crude for May settlement was down 15 cents, or 0.6 percent, at $26.60 a barrel on London's International Petroleum Exchange at 1:24 p.m. Oil pared losses after the International Energy Agency said it sees no need to tap emergency reserves.

Earlier, Brent fell as much as 4.7 percent to $25.50, the lowest intra-day price for the benchmark contract since Dec. 10. It has dropped 21 percent in six trading sessions on waning concern about loss of oil supplies. That's the biggest such slide since a 25 percent plunge in the period ended Sept. 24, 2001, just after terrorist attacks shook the U.S.

In New York, the April delivery oil contract, which expires at today's close, was down 58 cents at $29.30 a barrel in electronic trading on the New York Mercantile Exchange. May crude oil was down 49 cents at $28.87, a bigger decline than the May Brent contract in London.

"In a bull market, or a bear market, Nymex crude always tends to outpace the Brent price movements because funds are more active on the New York market,'' said Nauman Barakat, head of the European oil trading desk at Fimat International Banque SA.

"The Nymex-to-Brent spread has narrowed significantly,'' he said. "Earlier there was always more of a premium on the Nymex market and that war premium is evaporating into thin air now.''

Both of the above-cited articles and this Reuters report from Wednesday night indicate that OPEC has stated explicitly that it will increase production to counter any supply disruptions. Their ability to do that is constrained by their limited excess capacity, most of which is in Saudi Arabia.

ELECTRICITY DEREGULATION IN TEXAS AND CALIFORNIA, WORLDS APART: This LA Times article from Monday contrasts electricity policy in Texas and California, and makes it crystal clear how colossal a policy failure the California "deregulation" was. Furthermore, the article illustrates the major point, that California's woes were not the fault of deregulation, which when done well, creates value for consumers and for innovative suppliers who are willing to rethink the value propositions they offer to their customers. There's also a little quote from yours truly in the article.

STRICTER CAFE STANDARDS FOR LIGHT TRUCKS ARE INEFFICIENT: Check out this new AEI-Brookings Joint Center study on light truck fuel efficiency. Punch line: more stringent fuel efficiency standards for light trucks are an inefficient way to reduce gasoline use. From the abstract:

The National Highway Transportation Safety Administration (NHTSA) recently proposed increasing the fuel economy of new light trucks by 1.5 miles per gallon for vehicles produced in model year 2007. NHTSA’s analysis of its proposal implausibly concludes that the benefits to consumers are more than twice the costs to manufacturers, ignoring effects on the environment or dependence on foreign oil.

NHTSA’s proposal has several serious flaws. It wrongly presumes that manufacturers cannot produce items that consumers are willing to buy, even though they could make money by doing so. Its analysis uses overly optimistic measures of net benefits. In addition, NHTSA neglects the adverse effects from the increased driving induced by the proposal. By lowering the cost of driving, NHTSA’s proposal increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy.

If NHTSA is interested in a cost-effective way of reducing gasoline use, it should consider giving consumers better information about fuel economy of new vehicles, or suggest a modest gasoline tax. A penny per gallon levy would conserve more fuel in 2007 than NHTSA’s proposal, while lowering, rather than increasing, traffic congestion and accidents.

This recommendation parallels one that I made in this February post, building on Virginia Postrel's Economic Scene column on CAFE standards from December 2001.

In an email I received from Ed Reid, a very smart energy industry and policy expert I know, he makes the following observations about my post on fuel-cell powered mobile electronics:

You are absolutely right about trying to pick winners. Parallel research programs are expensive, but experience has proven that they are not wasteful. The research is also far less expensive than development, demonstration and deployment (the rest of the RDD&D process). I have seen many programs judged by some to be "sure winners" fail; and, I've seen a few "losers" succeed. I've also seen elements of multiple unsuccessful programs combined to produce a success. However, for cross-licensing to succeed, there must first be technology to license.

Yesterday's plummeting oil prices were stunning -- according to Bloomberg Energy News, light sweet crude on NYMEX fell $3.26!!! That's approximately a 10% drop, in a commodity market where a 3% change is viewed as pretty extreme. Is this the result of uncertainty resolution? Or do traders think that Iraqis will listen to President Bush and not torch the oilfields?

This Houston Chronicle article argues that the price decrease is the result of stripping the war premium out of the market. I recommend reading the entire article, which puts the price increase in a nice historical context, and also points out how much more competitive and better integrated oil markets are than they were 10 years ago. A story on the Marketplace radio show last night made the same point, and I'll link to the file when it comes online.

But this Forbes article from this morning suggests that there's still some volatility, with prices in world markets edging up in advance of the New York open.

RESOLUTION OF SOME UNCERTAINTY PRODUCES A RALLY: Financial markets see the change in geopolitical motion as a resolution of uncertainty that has plagued markets, as this Washington Post article and this CNN/Money article indicate. As both note, this behavior is consistent with the perception that a war would be short.

Note also that London oil prices remained volatile, and New York opened slightly higher, Both markets have closed substantiall lower than recent peaks (and, in real terms, well short of all-time highs), which is consistent with some expectation of future increased supplies.

Fuel-cell Powered PDAs? They’re Coming

This week is National Energy Education Week, and I would like to celebrate by highlighting some fascinating, and potentially incredibly useful, research being done on ways to use hydrogen fuel cells for mobile electronic devices. Electronics companies including Toshiba, Intel, Motorola, and 3M have been investing in research to replace batteries with fuel cells, and some of them are actually nearing commercialization.

Why power electronic devices like cellphones, laptops, PDAs, and video cameras with hydrogen fuel cells? Traditional lithium ion batteries are becoming increasingly exasperating; they are heavy, you have to power down to change batteries in most cases, and as the energy intensity of our electronic demands increases, batteries just don’t last long enough to provide practical power. Batteries have not innovated at the same rate as microprocessors, memory, and other electronic technologies, which means that they have not become more productive and have not gotten smaller and smaller.

Research into small fuel cells, called microcells, indicates that they could do what batteries have not. Toshiba is a pioneer in this research, and they released a microcell prototype at a trade show in Germany last week. The prototype currently uses methanol as the source of the hydrogen, and can power a laptop for five hours with one cartridge of fuel. The cell is practical for refreshing on the fly – as the cartridge drains, the user can insert another cartridge without turning off the computer. It is still larger than comparable lithium ion batteries, but Toshiba foresees the cells getting smaller through ongoing research over the next year. Toshiba plans to release the microcells for commercial sale by next year.

An article in Sunday’s New York Times delves into these research efforts, noting in particular the role of consumer preferences in shaping this research initiative:

But the biggest reason the smaller cells are expected to become popular sooner is their appeal as a convenience — something that consumers have shown a willingness to pay for — and not as an answer to energy and environmental problems.

Fuel cells that last far longer than do rechargeable batteries would free laptop computer users and television camera crews, for example, from the need to lug heavy and expensive backup battery packs.

The article also contains some good background information on issues with hydrogen fuel cells, as does an article from early March in Wireless News Factor.

The use of methanol instead of some other hydrocarbon to generate the hydrogen also contributes to the practicality of the cells, because methanol can be stored and transported at very high concentration, which means a lot of power in a little space relative to ethanol or pure hydrogen. This feature contributes to what researchers hope will be another manifestation of Moore’s Law – that microcells will double in power and halve in size over the next 18 months.

Lots of companies are working hard to make that happen. Large electronic firms like Toshiba, Intel, Motorola, Samsung, and Sony are all working on fuel cells for mobile electronics. But the real innovators are smaller outfits that have traditionally done more scientific instrument research, such as Manhattan Scientific. This pattern of research has created substantial value, and many new and unforeseen products, in mobile electronics. Historically, this pattern has shown up in everything from mass-market ceramics to steel. In this pattern many people work independently toward a shared goal, but want two very important things: to get there first and be the one that becomes the established standard. Thus their profit motive (where profit can include not just financial remuneration, but also status and the satisfaction of being the one who solved it first, or best) creates new and unforeseen products and opportunities to do things that we never imagined before.

Some people characterize this pattern as wasteful, with all of that replication of research effort. I strongly disagree. If you try to channel these efforts and guide research with an objective of minimizing duplication, you are very likely to fail, because the duplication is never perfect – even if several people are working toward the same goal, such as smaller methanol fuel cells, the variations in their procedures, their materials, their ways of approaching the problem, and just sheer luck will all lead them down different paths. It’s that human variation that maximizes the potential benefit from research. All of that seeming duplication also does something incredibly valuable: it maximizes the probability that the researchers will find dead ends and eliminate them from further exploration at that time, in that application.

The combination of a perceived benefit from providing consumers with an alternative to batteries and the striving drive of human creativity to solve these technological problems are combining to create this new opportunity. Plus it doesn’t hurt that fuel cells can be a cleaner fuel source than batteries, depending on the fuel you use and how you produce the chemical reaction in the fuel cell. And don’t forget that microcell research could inform the research on hydrogen fuel cell vehicles, and make them cheaper, more energy efficient, and therefore more potentially commercial.

THE "DAY OF TRUTH" EFFECT IN OIL MARKETS: Not surprisingly, London crude oil prices rose today. There are two interesting things to observe here. First, the FT article states that

In London IPE Brent crude prices for May delivery were trading up 42 cents at $30.55 per barrel at 1115 GMT having been as high as $31.65 per barrel earlier in the day.

Notice these data on Friday's closing prices from Bloomberg Energy News:

Nymex Crude 35.38 -0.63
Dated Brent $ 31.61 -0.30

The price difference between the main US market and the main European market is quite interesting. I am not an expert in the differences between the light sweet (i.e., with sulfur removed) crude and Brent crude (which is largely from the North Sea deposits), but as with most financial markets when these two prices diverge substantially there's always an interesting story. Any ideas? My thoughts are that the US is still more substantially feeling the effects of the Venezuela supply shortfall (a supply side reason), and that with the reformulated gasoline turnover season in the US about to start, there's an increase in demand.

Second, the FT article points out that the 40-cent increase in London today is a small spike relative to the $1.62/barrel decrease last week, which has been variously attributed to either the anticipation of a short, successful war or the delay of a war.

HERE'S THE FRUIT OF MY WEEKEND LABOR: A new and improved Northwestern webpage for me! Computer programming is not my comparative advantage, so this tried my patience. But it worked! Unlike my other page, I will update this page frequently with new course syllabi, links to my research and other publications, and random fun stuff. I also have posted there something that I devised while teaching at William and Mary, writing guidelines. These are very general writing guidelines, and tend to emphasize the things that are my pet peeves (like mixing up "that" and "which", and using "impact" as a verb substitute for "affect"), but they're out there for general consumption.

As always, comments welcome.